The Need for a Proper Financial Plan to Build a Retirement in India

As life is uncertain and mishap can occur to anyone anytime, for any individual it is very important to set two major goals. First, the individuals should goal to be financially independent and secondly, they should do a proper retirement planning at early stage of life while being in service. However, one can have their own viewpoint while doing financial planning; planning for your retirement may need some intense preparation. While making a secured retirement planning there are various different aspects that should be kept in mind.

Nowadays, you can find an array of options to plan your retirement one of the best way to enjoy the stress free life and ensure safety retirement is pension plan. When it comes to planning your retirement pension plan is the most appropriate choice for every individual. However, apart from pension plan there are various other options that can be considered while doing retirement planning.

PPF (Public Provident Fund) –

Public provident fund is one of the most common fixed income product for long term saving. It provides high interest rate of 8.7% to the individuals and is considered as a great saving option. Public Provident fund offers attractive long term investment in affordable premium rates. Moreover, the investment made on PPF account and the withdrawal amounts are eligible for tax deduction under Income Tax Act. Being a government backed pension plan, public provident fund offers low risk of defaults. The PPF comes with a lock in period of 15 years that can be extended in a period of 5 years. After the completion of 7 financial years the insured person can take loan against the collected money and can also make partial withdrawals.

EPF (Employee Provident Fund)-

Employee provident fund is also well known for building long term capital growth. Under EPF 12% of the basic salary is contributed by employee while the employer contributes the equal amount of fund. Recently the government has made some changes in EPF under which the retirement age has been increased to 58 years from 55 years. Moreover, the employees’ can also withdraw a part of money in case of medical emergency, child’s wedding, purchasing a house etc. after the completion of 58 years the applicant can withdraw the entire amount saved in EPF account.

NPS( National Pension Scheme)-

National Pension Scheme is one of the best instrument of retirement planning. This is a government backed pension plan introduced by Pension Fund Regulatory and Development Authority to boost the pension sector of the country. As a government backed retirement instrument National Pension Scheme offers plethora of benefits to its subscribers. Under section 80CCD of Income Tax Act, NPS investments are eligible for tax exemptions of up to Rs1.5 lakh per year. Equity is the most beneficial way gain return on investments for the long term. Not many 80C products allow acquiring exposure to equity and one of them is NPS. NPS balance out the exposure with the government and corporative bonds. An individual can easily apply online for a New Pension System Account if he/she has an account in any of the 17 banks enrolled with National Security Depository Ltd (NSDL) and is linked to your PAN.

Mutual Fund Retirement Plan –

The pension schemes offered by mutual fund are more or less similar like retirement plans offered by insurance companies. The accumulation process of retirement plan from mutual fund and retirement plan from insurance companies generally remains the same. Based on the fund options chosen by you the money is invested in equity or debt according to the market performance.

The distribution phase of noticeably different, under this phase the purchase of annuity is not mandatory. The investors can withdraw the whole amount according to their own requirement and wish. In order to receive a regular income an individual can also set up a systematic withdrawal plan (SWP). Moreover, the investors can redeem units as per required.